Yielding a stellar 4.2% and sporting a consensus long term earnings growth projection of 10.2%, this operator of crude oil pipelines and terminals looks like a solid pick for investors seeking both income as well as capital appreciation.

Strong Q3, DCF Jumps

Sunoco Logistics reported third quarter earnings per unit of $1.09 on November 7, beating the Zacks Consensus Estimate by 28% and the year-ago earnings by 40%. Revenues of $3,218.0 million were up 13% year over year from $2,850.0 million, and also surpassed the Zacks Consensus Estimate of $3,210.0 million. Results were driven by strong demand for its crude pipeline system and terminals facilities. Importantly, distributable cash flow (DCF) jumped approximately 37% year over year to $149.0 million. This bodes well for future distribution increases.

Last year, Sunoco Logistics and fellow pipeline operator MarkWest Energy Partners L.P. (MWE) decided to expand their ethane pipeline project. Known as the 'Mariner West', the proposed initiative is expected to begin its service by July 2013. It will ship up to 65,000 barrels of ethane per day to Sarnia, Ontario markets to support additional ethane production in the Marcellus region. The Mariner West Project is backed by producer demand and assurance from Sarnia industrial customers.

Track Record of Consistent Distribution Growth

Sunoco Logistics pays an annual distribution of $2.07 per unit, yielding an impressive 4.2%. The partnership hiked its payout by 10% sequentially and 25% year over year in November, marking the 30th distribution increase in a row. Based on its investment grade credit rating and flexible capital structure, Sunoco Logistics should be able to at least maintain its distribution, no matter what oil prices do.

2012 Earnings Estimates Moving Higher

Following the third quarter earnings beat, six of 9 earnings estimates for 2012 moved higher in the past 60 days. As a result, the Zacks Consensus Estimate increased 8% to $3.96. This implies year-over-year growth of 35%.

Valuation Picture

Units of Sunoco Logistics are trading around 12.4 times forward estimates, in line with the peer group average. However, a price-to-sales (P/S) ratio of just 0.4 suggests that the stock is still undervalued. But more importantly, the trailing 12-month return on equity (ROE) of 36.8% - much better than its peer group average of 15.0% - speaks to Sunoco Logistics’ solid management.

Market Performance & Technicals

Units of Sunoco Logistics have been outperformed the 50 and 200-day moving averages since mid-June. During the past six months, the partnership has delivered a return of around 45%, versus just 8% for the S&P 500 benchmark. With the expectation for consistent growth in earnings and distribution, the stock looks poised to keep the winning streak going.